Hostess Judge Approves Wind-Down of Twinkie Maker

Gary Keller, a Hostess driver for 16 years, carries the last items of his final delivery at a Hostess Brands Inc. Bakery Outlet store in Peoria, Illinois, on Nov. 16, 2012. Photographer: Daniel Acker/Bloomberg

Nov. 21 (Bloomberg) -- Hostess Brands Inc. won interim
approval from a bankruptcy judge to shut down and start selling
the Twinkie maker’s assets after last-minute mediation with its
bakers’ union failed to resolve a contract dispute, leaving more
than 18,000 jobs at risk.

U.S. Bankruptcy Judge Robert Drain today approved Hostess’s
request to close at a hearing in White Plains, New York. Chief
Executive Officer Gregory Rayburn said 15,000 workers will be
fired today so they can start receiving unemployment benefits.
Hostess said Nov. 16 that it needed to liquidate because a
weeklong strike by its bakers’ union crippled operations.

Sales of Hostess assets may generate about $1 billion,
financial adviser Joshua Scherer of Perella Weinberg Partners LP
told Drain today. Drain approved going-out-of-business sales at
Hostess’s retail outlets and the return of excess ingredients
and packaging. Final approval of the wind-down plan will be
considered Nov. 29, and Hostess will seek court approval later
for sales of major assets, such as its brands.

There is “very intense” competition for the brands,
Scherer said in court. A sale would be a “once in a lifetime
opportunity for our competitors to get iconic brands,” he said.
The 82-year-old company makes Wonder bread, Hostess CupCakes,
Ding Dongs, Ho Hos and Drake’s Devil Dogs.

‘Could Rehire’

Most of the wind-down will take place in the first three
months, said Heather Lennox, a lawyer for Hostess with Jones
Day. Quick asset sales may preserve some jobs, Scherer said. A
prospective buyer visited a Drake’s cake factory yesterday and
asked whether its acquirer “could rehire employees who worked
here,” he said.

Rayburn asked Drain to shield company officials from
lawsuits over today’s firings. Hostess has been spending about
$1 million a day for payroll since halting operations last week,
down from $2 million a day, Rayburn said.

Hostess said about 3,200 employees will stay on temporarily
to clean plants and mothball equipment. Drain approved a plan to
retain the employees, as well as a request to use cash
collateral and an amended financing agreement for the company.

Drain rejected a request by U.S. Trustee Tracy Hope Davis
to convert the Hostess case to a Chapter 7 liquidation from
Chapter 11, which would have handed control over the asset sales
to a trustee. Conversion “would be a disaster,” Drain said.

Charles Carroll, an adviser to Hostess with FTI Consulting
Inc., argued that a trustee would “take time to get up to
speed” while the assets’ values declined.

‘Last Chance’

Drain adjourned the hearing two days ago and sent the
parties off for a last-ditch effort to negotiate terms that
might keep the floundering company afloat. Hostess said it was
forced to opt for liquidation after the bakers’ union went on
strike Nov. 9. The union, representing about 5,000 Hostess
workers, walked out after Drain imposed contract concessions
opposed by 92 percent of the union’s members.

“I’m giving the union as well as the debtors and their
lenders a last chance to try and work those issues out in
private,” Drain said Nov. 19. He cited “serious questions as
to the logic behind the decision” to strike.

Hostess, based in Irving, Texas, and the union agreed to
Drain’s request to enter confidential mediation under his
supervision. Company and union officials acted in good faith in
yesterday’s talks at the law offices of Jones Day in New York,
Drain said today.

Mediation ‘Unsuccessful’

Mediation with the Bakery, Confectionery, Tobacco and Grain
Millers International Union “was unsuccessful,” Hostess said
yesterday in a statement.

Hostess asked Drain for approval to shut down 36 bakeries,
242 depots, 216 retail stores, and 311 hybrid depot-store
facilities, according to court filings. There are 58 other
leased or owned sites used for storage, warehousing of products
or parking. The plants are in 22 states, stretching from Alaska
to New Jersey.

Ken Hall, general secretary-treasurer of the Teamsters
union that represents Hostess drivers, said in a statement that
the liquidation process will take six months.

“With Judge Drain’s ruling today, more than 18,500 workers
will be left without a job as Hostess proceeds with the
liquidation of the company,” Hall said in the statement. “For
our 6,700 Teamster Hostess members, our union will be focusing
its efforts on ensuring that they receive what they are owed in
the form of wages for hours worked accrued benefits.”

WARN Act

Laid off Hostess worker Mark Popovich sued the company
alleging that his termination without 60 days advance written
notice violates the U.S. Worker Adjustment and Retraining
Notification Act, known as the WARN Act. Popovich, who worked as
a loader in the shipping department of a Hostess facility in
Ohio, seeks to represent all laid off Hostess workers and seeks
unpaid wages, vacation pay and benefits for 60 days, with
“first priority administrative expense status,” according to a
complaint filed in U.S. Bankruptcy Court in White Plains.

Hostess sought court protection in January, its second time
in bankruptcy, listing assets of $982 million and debt of $1.43
billion.

The case is In re Hostess Brands Inc., 12-22052, U.S.
Bankruptcy Court, Southern District of New York (White Plains).